Already a member?

Check Point Lags Ests, Shares Slump - Analyst Blog

Check Point Software Technologies Ltd.
(
CHKP
) exited third quarter 2012 with adjusted earnings of 73 cents
per share, matching the Zacks Consensus Estimate. Adjusted
earnings per share exclude one-time items, but include
stock-based compensation expense. The miss was due to a feeble
macroeconomic environment, which prompted customers to tighten
their budgets. Currency fluctuation in Europe also had a negative
impact on the overall results. Shares closed at $41.15, down
13.22% from the previous day's price. Shares also fell 0.66% in
the after-hours. The share price depreciation reflected investor
concern as the guidance failed to meet their expectations and
Euro concerns.

Revenue

Check Point reported revenue of $332.4 million in the third
quarter, up 7.8% from $308.3 million in the year-ago period. The
quarter's result was within the company's guidance range of
$316.0-$345.0 million and came slightly below the Zacks Consensus
Estimate of $333.0 million. The year-over-year revenue growth was
supported by 12.6% increase in Software Updates, Maintenance and
Services revenues, partially offset by roughly flat Product and
Licenses revenue.

Geographic contributions also remained stable with Americas
contributing 45% of revenues, Europe 37%, and Asia-Pacific and
Japan, Middle East and Africa region contributing the remaining
18%. North America continued to deliver good results with
double-digit growth in product and service revenues.
Nevertheless, the quarter was a bit affected by Euro headwinds.

Overall, revenue improvement was driven by the growing demand for
Check Point's enterprise appliance units and software blades.
Management also reported decent performance in terms of the
number of large deals.

Operating Results

Reported gross profit increased 10.7% year over year to $294.1
million. Gross margin increased 230 basis points from the
year-ago quarter to 88.5%. Cost control measures led to improved
margin expansion.

Operating income came in at $182.6 million, up 15.5% year over
year. Operating margin increased 370 basis points year over year
to 55.0%. Total operating expenses increased 3.7% year over year
as Check Point continued to invest in business and hirings for
research and development, sales and marketing and technological
support. However, this was partially offset by the strengthening
of the dollar.

Reported net income was $152.4 million or 73 cents per share, up
from $134.1 million or 63 cents in the comparable quarter last
year. Excluding special items but including stock-based
compensation expense, non-GAAP net income was $153.2 million or
73 cents a share compared with $143.3 million or 67 cents in the
year-earlier quarter.

Balance Sheet & Cash Flow

Check Point exited the quarter with cash, cash equivalents and
marketable securities of approximately $1.45 million, down from
$1.37 million in the prior quarter. Trade receivables were $240.9
million. Cash flow from operations was $180.4 million, up from
$157.5 million in the previous quarter. Capital expenditure
decreased to $1.18 million from $1.28 million in the prior
quarter.

During the quarter, Check Point repurchased 3.2 million shares
for a total consideration of $156.1 million.

Fourth Quarter Outlook

Management sees revenue in a range of $355.0 million to $387.0
million, and earnings (excluding one-time items) in the range of
83 cents to 91 cents per share. The Zacks Consensus Estimates for
the fourth quarter and fiscal 2012 are pegged at 85 cents and
$3.01 per share, respectively. GAAP earnings per share would be 7
cents less than the non-GAAP figure.

Concurrent with fourth quarter outlook, Check Point cautioned
that the quarter could be somewhat challenging due to the
persisting economic backdrop. But at the same time, the company
assures that it is ready to face the challenges with renewed
strength buoyed by new product launches and increase in market
share. This justifies such wide revenue and earnings per share
projections.

Our Take

Check Point delivered a modest third quarter with the bottom line
matching the Zacks Consensus Estimate and top line coming
slightly below. But the results were decent in terms of
year-over-year comps. Fourth quarter revenue guidance could not
meet the Street's expectations and we believe that revenue will
continue to be under pressure due to weakening macroeconomic
variables, increased pricing pressure, slowdown in growth,
billing and spending by the company as well as fresh competition
from
Palo Alto Networks Inc.
(
PANW
) in the new target markets of Check Point.

However, on the brighter side, Check Point continues to benefit
from strength at the high end of the market and increased demand
for its blade solutions. We think that investor sentiment will be
in Check Point's favor as shareholders remain encouraged by its
market share gains from the tech giant
Cisco Systems Inc.
(
CSCO
) and
Juniper Networks Inc.
(
JNPR
) and continuous share buybacks.

Please note that once you make your selection, it will apply to all future visits to NASDAQ.com.
If, at any time, you are interested in reverting to our default settings, please select Default Setting above.

If you have any questions or encounter any issues in changing your default settings, please email isfeedback@nasdaq.com.

Please confirm your selection:

You have selected to change your default setting for the Quote Search. This will now be your default target page;
unless you change your configuration again, or you delete your
cookies. Are you sure you want to change your settings?